Budget Your Bonus

Invest in Retirement: Making an extra mortgage payment to move up your debt-free date is tempting, but it’s not always the best way to use your bonus. “I’d rather see people put money into retirement than pay off a mortgage,” Williams says. If you didn’t contribute enough to your 401k last year, be sure to do it this year. If you must, set aside your bonus in a savings account to allow for higher 401k payroll deductions.

Are you 50-plus and already contribute the maximum to your 401k? Consider using your bonus to make a catch-up contribution, a retirement investment vehicle designed for the typical Baby Boomer, who hasn’t put aside nearly enough. For the 2008 tax year, the 401k catch-up limit is $5,000; same for IRAs.

Save for Your Children’s Education – or Your Own: Retirement should take priority, but investing for education is important, too. Money squirreled away for years in a tax-advantaged vehicle, such as a 529 plan, can accumulate and keep pace with rapidly rising college tuitions.

Put the Money Toward Your Freedom: Save for a career change, whether to pay for further education or start your own business. “A worker should put the money into a personal ‘freedom fund,’ where it can finance some future move up the success ladder,” says Rob Bennett, author of Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.

Live Large – At Least for One Night: Do set aside a little money for a dinner out with the smart set or whatever satisfies your urge to consume conspicuously. This will help keep you motivated to earn a big bonus next year – which you’re probably already counting on.

Give It Away: While you may not be totally happy with your bonus or salary this year, rest assured you’re doing better than a lot of other people. Find a cause that speaks to you, and dip into your pockets for a related charity. Both getting and giving help make society function smoothly.